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September 26th, 2008 (Modified on September 29th, 2008)

WAMU’s Failure and its Effect on Consumers

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The Federal Deposit Insurance Corporation (FDIC) has seized and sold Washington Mutual Bank (WAMU) on Thursday to JP Morgan Chase, in the largest bank failure in US history. Caused mainly by a mass customer-withdraw of deposits, WAMU was purchased by JP Morgan for $1.9 billion, taking over their loan portfolio stuffed with $307 billion in assets. JP Morgan’s purchase price is expected to grow since the country’s now largest bank by market value plans on writing down billions in bad loans, and raise about $8 billion in new capital.

In a press released issued by the FDIC yesterday, the agency assured WAMU customers that, “it will be a seamless transition. There will be no interruption in services and bank customers should expect business as usual come Friday morning,” said FDIC Chairman Sheila C. Bair. “For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks.”

Back in March, WAMU had rejected a buyout offer from JP Morgan, opting instead for a $7 billion infusion from private-equity firm TPG. The failure of WAMU eclipses the previously largest bank failure of Continental Illinois which held $40 billion in assets back in 1984.

Likely Results from WAMU’s Failure

In the immediate picture, not much will change with WAMU. In the future we may see an orderly consolidation of various branches. One less competitor in the market could have a negative effect on pricing, not just for mortgages but for various banking products. Lack of competition is never a good thing when it comes to competitively priced products.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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